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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Brican Fabrications v. Merchant City Developments [2003] ScotCS 201 (17 July 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/201.html Cite as: [2003] ScotCS 201 |
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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Hamilton Lord Caplan
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XA131/02 OPINION OF LORD MARNOCH in APPEAL From the Sheriffdom of Glasgow and Strathkelvin at Glasgow by BRICAN FABRICATIONS LIMITED Pursuers and Appellants;
against
MERCHANT CITY DEVELOPMENTS LIMITED Defenders and Respondents: _______ |
Act: Mackenzie, Solicitor Advocate; Masons (Pursuers and Appellants)
Alt: Edward, Solicitor Advocate; Maclay Murray & Spens (Defenders and Respondents)
17 July 2003
[1] This is an appeal against an interlocutor of the sheriff principal by which, inter alia, he recalled a decree for payment in favour of the pursuers and present appellants and granted absolvitor to the defenders and present respondents. [2] As the pursuers' plea-in-law makes clear, the action between the parties is based on contract and, in order to make sense of what transpired before us, it is necessary, in the first instance, to set out in full the findings-in-fact made by the sheriff. These are as follows: -"1. The Pursuers are steel fabrication and welding contractors.
2. In about April 1988 the Defenders were engaged in a project to
refurbish and develop the former Candleriggs Market Building for leisure use. Prior to that time they had endeavoured to manage the project on their own account but had experienced difficulties in doing so. In April 1998 they contracted with Circle Construction Limited ("Circle") whereby Circle would be employed by the Defenders as main contractors in the execution of the said project. No. 6/3 of Process is the Trade Contract between the Defenders and Circle, signed in May 1998 though dated 30th April 1998 ("the main Contract").
3. In terms of the main contract, Gilchrist Briggs Construction Managers
were appointed project managers of the said project.
4. In terms of the main contract Circle were responsible for the
procurement and appointment of all sub-contractors required for completion of the project.
5. An essential component of the project was the supply and erection of
steel fabrication works.
6. In view of the history of the project prior to the signature of the main
contract the programming of the project was critical. The sub-contract for the said steel fabrication works should have been awarded within two or three months of formation of the main contract, that is to say by June or July 1998.
7. Circle were unable during that period to find a sub-contractor willing
and able to enter into a sub-contract for the completion of the steel fabrication works. They were not candid with the Defenders concerning their difficulties, and led the Defenders to understand that a sub-contractor was soon to be appointed for said works.
8. In around August 1998 Mr Matthew Ferrie, then contracts manager for
Circle, made a telephone call to Mr Crawford, contracts director of the Pursuers, to ask whether the Pursuers would be interested in executing the said steel fabrication works as sub-contractors to Circle.
9. Mr Crawford knew Mr Ferrie from the latter's previous employment.
The Pursuers had no previous dealings with Circle and in particular were not aware of Circle's financial status. Mr Crawford was reluctant to enter into a sub-contract with them because of these factors. He made enquiries through a supply company with whom the Pursuers had a trading relationship, and received information that Circle "were only good for £20,000", that being a sum significantly less than the anticipated sub-contract value. The Pursuers received some drawings from Circle but were disinclined to enter into a sub-contract and made no approach to them.
10. About six weeks after Circle's initial approach, the Pursuers received a
further approach from them by telephone. The Pursuers' response was non-committal, since Mr Crawford did not wish to embarrass Mr Ferrie by an outright refusal of the sub-contract. The Pursuers did not intend, however, to enter into a sub-contract with Circle.
11. The reason for the pursuers' unwillingness was that they were not
satisfied of Circle's financial status and in particular they were concerned that Circle might fail to pay them sums due under a sub-contract, and might go into liquidation.
12. At about the beginning of October 1998 Mr K T Maguire, a director of
the Defenders, became dissatisfied with, and sceptical of, assurances made by Circle to the effect that negotiations with a steel fabrication sub-contractor were almost finalised and that the sub-contract was about to be awarded. He made further direct enquiries of Circle and ascertained that the Pursuers had been approached. He then telephoned Mr Crawford of the Pursuers, informed Mr Crawford that Circle had assured him that the Pursuers were in the process of concluding a sub-contract, and asked Mr Crawford if that information was correct. Messrs Crawford and Maguire were not previously known to each other, nor were their respective companies.
13. Mr Crawford told Mr Maguire that the information was not correct,
that the Pursuers did not intend to enter into such a sub-contract, and that the reason was the Pursuers' fears that in the light of Circle's financial status the Pursuers might not receive payment under a sub-contract.
14. Mr Maguire invited Mr Crawford to attend a meeting at the Defenders'
offices on 6th October 1998. Mr Crawford attended that meeting with Mr I Mulholland, the Pursuers' managing director. Mr Maguire and Mr D McHugh, development surveyor, were present on behalf of the Defenders. No representative of Circle was invited to the meeting.
15. According to the usage of the construction industry, a meeting between
a prospective sub-contractor and the employer, outwith the presence of the main contractor, is very unusual.
16. At the time of said meeting, any further delay in the execution of steel
fabrication works would have had serious consequences for the timeous completion of the project as a whole, and was likely to have caused the Defenders loss in that they would not have been able to give possession of various subjects to tenants at the anticipated dates, and they were therefore exposed to the risk of delay in the receipt of rental income. Further, the Defenders were aware that the failure of Circle to secure a steel fabrication sub-contractor placed the completion of the project in jeopardy. There was no immediate prospect of the appointment of another sub-contractor as an alternative to the Pursuers.
17. At that meeting, Mr Maguire for the Defenders made a verbal offer
that the Defenders would pay directly to the Pursuers their entitlement to monies under a sub-contract with Circle, if the Pursuers were prepared to enter into such a contract and if Circle were prepared to agree to the arrangement.
18. The Pursuers would not have been prepared to enter into a sub-contract
with Circle in the absence of such an agreement, and the Defenders' Mr Maguire knew that.
19. No. 5/1 of Process is a copy of a letter dated 15th October 1998 signed
by Mr Maguire for the Defenders and sent to the Pursuers, marked for the attention of Mr Crawford.
20. No. 5/3 of Process is a copy fax sent by Circle to Mr Crawford of the
Pursuers dated 6th November 1998.
21. No. 6/2 of Process is a copy letter sent by Mr McBride of Circle to
Mr Maguire of the Defenders dated 18th November 1998. Its contents were not communicated to the Pursuers.
22. No. 5/4 of Process is a copy fax sent by Mr Mulholland of the Pursuers
to Mr Maguire of the Defenders dated 11th December 1998.
23. No. 5/5 of Process is a written Sub-Contract Agreement between the
Pursuers and Circle, executed in or around December 1998 but dated 29th October 1998. Said Sub-Contract Agreement governed most, but not all, of the contract terms between the Pursuers and Circle.
24. The Sub-Contract between the Pursuers and Circle was procured by
there being agreed (at the instigation of the Defenders) an agreement whereby the Defenders undertook to make payment to the Pursuers of all sums falling due to the Pursuers for work performed by them under the said Sub-Contract.
25. The said arrangement was a tripartite contract between the Pursuers,
the Defenders and Circle constituted by the said verbal offer by Mr Maguire at the meeting of 6th October 1998, and the exchange of letters and faxes evidenced by Nos. 5/1. 5/3. 6/2 and 5/4 of Process.
26. It was a term of the tripartite contract that Circle would quantify and
value the works executed by the Pursuers and inform the Defenders of the sums to be paid to the Pursuers in respect thereof. It was further agreed that the Pursuers would render a VAT Invoice directly to the Defenders in respect of said sums, and that the Defenders would deduct said sums from the payment to be made to Circle in terms of Circle's Interim Certificates.
27. The said Sub-Contract Agreement was in standard form, which
included per incuriam Clause 6 (headed "Payment"). It was not intended by any of the parties that the provisions of said Clause 6 should prevail over the provisions of the said tripartite agreement where those provisions were inconsistent with each other, nor was it intended by any of the parties that any of the terms of the tripartite agreement should be voided by the purported inclusion of Clause 6 in the standard form contract.
28. The basis of valuation of the works executed by the Pursuers was a
revised Bill of Quantities agreed between them and Circle. The Defenders were not a party to the agreement incorporated within the said revised Bill of Quantities. The Defenders and Circle had a separate agreement for the valuation of structural steelwork, which was at prices lower than those charged by the Pursuers. The Pursuers were not a party to the latter agreement.
29. On or around 7 October 1998 the Pursuers commenced work under the
Sub-Contract. In accordance with the said tripartite agreement the Defenders periodically valued work performed by the Pursuers and requested that the Defenders pay said sums directly to the Pursuers, which the Defenders did on receipt of VAT invoices from the Pursuers. Applications for payment were made, and paid, as follows: 23rd December 1998 (£12,724.02); 25th January 1999 (£22,593.28); 3rd March 1999 (£2,086.01); 30th March 1999 (£8,513.68); 30 April 1999 (£1,491.56); 3rd June 1999 (£18,234.59).
30. In or about late June 1999 the Defenders received arrestments in
respect of sums due to be paid by them to Circle. On 30th June 1999 the Defenders paid to the Pursuers a further sum of £12,208.97, and on 4th August 1999 a further sum of £1,643.38 in respect of the sub-contract between the Pursuers and the Defenders. Thereafter no sums have been paid by the Defenders to the Pursuers.
31. A Provisional Liquidator was appointed to Circle in August 1999 and
the company was wound up on 31st August 1999.
32. Enclosed with a letter dated 20th July 1999 the Pursuers sent to the
Defenders a draft final account in respect of outstanding payments due under their sub-contract with Circle. No. 5/7 of Process is a copy of the said letter and final account.
33. In terms of said final account the total value of the Pursuers' work was
£120,146.09. Said figure includes £533.12 for the projected installation of a fan housing which was not completed. The said final account, less the said projected figure, is a reasonable estimate of the value of the work done by the Pursuers under the sub-contract, and amounts to £119,612.97. The Pursuers agreed to a deduction of 2.5 per cent of said value (£2990.32) giving a total of £116,622.65. The Defenders have paid to the Pursuers the sum of £79,504.49. The balance owing is accordingly £37,118.16 to which has to be added Value Added Tax in the sum of £6,495.68 giving a total of £43,613.84."
"in terms of the said tripartite contract between the pursuers, the defenders and Circle Construction Limited the defenders (were) bound to make payment to the pursuers of the sum of £43,613.84".
"The main issue in the case was whether (as the Pursuers contended) there was a contract between three parties whereby the Defenders undertook, as a distinct obligation, to make payment to the Pursuers for all of the work performed by them under their sub-contract with the Defenders; or whether (as the Defenders contended) the agreement on payment was that the Defenders would simply deduct from the sums due to Circle that portion which Circle owed to the Pursuers for the work done, and pay it direct to the Pursuers (but only as the paying agent for Circle)."
"The Pursuers were not going to enter into any sub-contract unless the obligation to make payment was squarely on the shoulders of the Defenders; and the Defenders had little option but to accommodate this exceptional request in order that the project as a whole could continue. I do not consider that, following the meeting and the brief exchanges of documents as above, any of the three parties was in doubt as to the nature of their agreement."
"[20] I have no doubt that the intention of the pursuers at the time of the meeting on 6 October 1998 was not merely to secure prompt payment of any sums which might become due to them were they to carry out the Candleriggs Market steel work, but to protect themselves against any default by Circle. I am prepared to accept that they considered that the agreement which had been reached was, as Mr Crawford put it, that they would "work direct" for the defenders who would "pay them accordingly". The testimony of the defenders' witnesses that the pursuers were looking for an arrangement to secure only prompt payment strikes me as at best disingenuous and I am not surprised that on the issue of credibility the sheriff preferred the evidence of the pursuers' witnesses. With little enthusiasm I have, however, come to the clear conclusion that the existence of the various documents has the result in law that the pursuers did not achieve what they hoped for. The central issue did not, in my opinion, turn on credibility.
[21] The starting point must be the contractual documents, that is to say the main contract between the defenders and Circle (no. 6.3 of process) and the sub-contract between the pursuers and Circle (no. 5/5 of process). These exist as the visible record of the contractual arrangements and the measure of the parties' rights under them. This is a matter of practical importance as much as a concept of the law of evidence. It is to these documents that any interested third party, for example the receiver or liquidator of any of the companies involved, would have recourse to determine the nature of rights created. Force is added to that view by the dictum of Lord President Dunedin in Muirhead & Turnbull v Dickson. I can accept that it is possible to read alongside the rights and obligations which the contracts create an arrangement which varies the manner in which these rights are to be exercised - in other words a collateral agreement. I cannot, however, accept that one can acknowledge an informal variation which is wholly inconsistent with rights which the contracts demonstrate.""[24] ... By virtue of findings in fact (32) and (33) the sheriff appears to have accepted as the amount owed by the defenders to the pursuers a figure brought out from what is described as a draft final account. The pursuers did not rely on the certification procedure as provided by the sub-contract nor did they make any reference to the Bill of Quantities which provided the basis for the certification procedure. ... The additional difficulty is that the sheriff dealt with the case on the basis that whilst the provisions for certification were required in the course of the sub-contract the situation altered on termination of that contract by liquidation of the contractor. He said (Note p12) that 'it seemed to me that there could reasonably be implied a contract term to the effect that payment would be due on a reasonable estimate of the work done for the sub-contract under deduction of sums already paid'. No argument relating to an implied contractual term appears to have been advanced before the sheriff and no such case is advanced in terms of the pleadings. It was submitted that such a term cannot be implied in the face of an express term to the contrary, and that the end of a contract does not in itself entitle a contractor to seek to recover on a quantum merit basis. ...
[25] It is difficult to see any satisfactory answer to these arguments, and in particular I do not consider that it is sufficient, as was suggested in argument on behalf of the pursuers, to simply take the view that the measurement procedure was merely an administrative process to determine the value of works done by the pursuers. At its simplest level I do not consider that the pursuers were entitled to maintain that the sum set out in a "draft final account" was due without evidence of measurement in accordance with the relevant Bill of Quantities. For these reasons I consider it appropriate to delete finding in fact (33)."|
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Hamilton Lord Caplan
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XA131/02 OPINION OF LORD HAMILTON in APPEAL From the Sheriffdom of Glasgow and Strathkelvin at Glasgow by BRICAN FABRICATIONS LIMITED Pursuers and Appellants;
against
MERCHANT CITY DEVELOPMENTS LIMITED Defenders and Respondents: _______ |
Act: Mackenzie, Solicitor Advocate; Masons (Pursuers and Appellants)
Alt: Edward, Solicitor Advocate; Maclay Murray & Spens (Defenders and Respondents)
17 July 2003
[15] It is clear from the pleadings of both parties that this litigation proceeded to proof on either hand on the basis that the pursuers and the defenders had reached an agreement at their meeting on 6 October 1988. They were, however, in dispute as to the terms of that agreement. In substance, the pursuers maintained that the defenders undertook that, in the event of the pursuers entering into a sub-contract with Circle to carry out the steelwork element of the Development, the defenders would make payment direct to the pursuers for that work; the defenders maintained that the agreement was to the effect that, in the event of the pursuers entering into such a sub-contract, the defenders would deduct from monies due by them to Circle under the main contract such portions as represented monies due by Circle to the pursuers under the sub-contract and remit those portions to the pursuers. The essential difference between these contentions was that, under the agreement contended for by the pursuers, the defenders incurred a direct obligation to pay the pursuers for all work duly carried out by them under the sub-contract, whereas, under the agreement contended for by the defenders, the latter's obligations were dependent on monies being due by them to Circle and in turn by Circle to the pursuers, the defenders thus being, as the sheriff put it, merely "the paying agent for Circle". Neither of these claimed agreements could, it was recognised, become operative unless and until Circle agreed or assented to it. That was because, well prior to 6 October 1998, the defenders had entered into a main contract with Circle which included the carrying out of the steelwork for the Development; under that main contract Circle was both obliged to carry out the whole works, including the steelwork, and entitled to payment from the defenders for work, including steelwork, carried out thereunder. It is not disputed that Circle gave its agreement (or assent) to the arrangement reached between the pursuers and the defenders, whatever precisely that was. [16] It is possible to analyse the legal relationship which came to pass as a tripartite contract (as the sheriff did) or as comprising a number of bilateral contracts, including a bilateral contract between the pursuers and the defenders, subject to a suspensive condition that Circle assent to it. On reflection I doubt whether in the end it matters which analysis is adopted. There is technically a timing difference because, on the sheriff's analysis, no contract could come into existence until all parties, including Circle, had communicated their concurrence; thus agreement could not have been made at the meeting of 6 October 1998 at which Circle was not represented. On the alternative (bilateral) analysis, which is that reflected in the parties' pleadings, agreement was reached between the two parties at the meeting on 6 October, albeit it could not become operative until Circle subsequently communicated its assent, as it did. But that timing difference is not, in the event, of importance to the present dispute. The terms in which Circle communicated its agreement (or assent) do not, in my view, point to one analysis rather than the other or to any difference in contractual effect whichever is adopted. [17] The essence of the dispute which went to proof before the sheriff was what was agreed between the pursuers and the defenders at their meeting. The sheriff in effect preferred the pursuers' version of the nature and result of the communings which there passed between the parties' representatives. I do not find it surprising that he did so. The defenders were in a very weak bargaining position. They had committed themselves to a main contract with Circle which, by early October 1998, appeared to be in serious difficulties because of Circle's failure to secure a steelwork sub-contractor. The implications for the defenders, in terms of delay and potential loss of rental income, if these difficulties were not rapidly resolved, were serious. The pursuers, on the other hand, were in a strong bargaining position. They were prepared to undertake the steelwork but, because of their apprehensions about Circle's creditworthiness, only on the basis that the defenders would accept responsibility for payment direct to them for steelwork duly carried out. No doubt what was said at the meeting left some aspects to implication. These were not lawyers negotiating elaborate and detailed contractual terms but businessmen seeking to reach a mutually acceptable bargain. The sheriff saw and heard these businessmen and reached the conclusion that not only did the pursuers privately intend that the defenders should be directly liable to them for payment but that the defenders made to the pursuers at the meeting an offer to that effect, an offer which, subject to the concurrence or assent of Circle, was clearly acceptable to the pursuers. I would not be disposed to interfere with that conclusion unless there were strong legal or compelling evidential grounds for doing so. I am not persuaded that there are. [18] Because the sheriff adopted a tripartite analysis his findings relative to the constitution of the contract have it made only after the passing of a number of informal communications subsequent to the meeting of 6 October. But it does no violence to his substantive decision to conclude that, if a bilateral approach is to be adopted, the agreement was constituted, subject always to the suspensive condition, by the close of the meeting on 6 October. In the circumstances of this case, since in my view, whichever analysis is adopted, the same result follows, I consider it unnecessary for this court to embark upon a reformulation of the relative findings in fact - which are in effect findings of fact and law. [19] The sheriff principal concluded, with little enthusiasm, that the pursuers did not achieve what they had hoped for. But that conclusion proceeded from a starting point constituted by the formal main contract between the defenders and Circle and the formal sub-contract between the pursuers and Circle; these the sheriff principal described as the visible record of the contractual arrangements and the measure of the parties' rights under them. He was, in my view, in error in treating these documents as the starting point and in concluding that, for the purposes of the present dispute, they represented the measure of the parties' rights. The main contract was in place before the pursuers and the defenders had their discussions; those discussions had resulted in agreement between these parties, assented to by Circle before any formal sub-contract document was executed by Circle and the pursuers. On a true construction of what occurred (and of the present parties', objectively ascertained, intentions in that respect) the formal sub-contract cannot be seen as intended to supersede the earlier agreement or to vary that agreement; rather it was a mode of implementation of that agreement. In so far as the formal sub-contract (a pro forma document to which the defenders were not a signatory) was on its face inconsistent with that agreement (as it was in relation to at least some aspects of the payment clause) it had no effect - at least as between the present parties. In particular, it could not affect the rights and obligations of the pursuers and the defenders inter se in respect of payment for the steelwork. The formal sub-contract had, of course, its place as part of the structure of the contractual arrangements; and it created operative rights and obligations as between the pursuers and Circle in relation to price, valuation of work, performance and quality of work, etc. But it did not affect the pursuers' substantive right to payment from the defenders as their creditor. [20] If the contractual structure was as I have described it, the right in the pursuers to receive payment, and the obligation of the defenders to make payment, for sub-contract steelwork which had been duly carried out, were not, in my view, affected by the subsequent liquidation of Circle, even if that liquidation resulted in the determination of the main contract. While the contractual mechanism for valuation may have fallen with that contract, the continuing availability of that mechanism was not, in the circumstances of this case, a condition precedent to the right to payment. If it was necessary to do so, I would be prepared to hold that, in order to give business efficacy to the contractual arrangements between the pursuers and the defenders, there was to be implied in these parties' bargain a term that, in the event of the contractual mechanism for valuation ceasing to be available (whether due to the liquidation of Circle or otherwise), the amounts payable by the defenders to the pursuers were such as would have been determined in any such valuation on the basis of the sub-contract Bill of Quantities. That appears to have been the basis on which the pursuers founded the quantification of their claim and upon which the sheriff assessed it. In the end there was no real dispute before us that, if the pursuers had a right to payment from the defenders, the measure of that right was fairly reflected in the sum for which the sheriff granted decree. [21] Although there was some discussion in the courts below of the line of authority in which British Eagle v. Air France [1975] 1 W.L.R. 758 is a leading case, that aspect was not pursued before us. [22] In the whole circumstances I agree that the appeal should be disposed of in the manner proposed by your Lordship in the chair. Brican Fabrications v. Merchant City Developments [2003] ScotCS 201 (17 July 2003)|
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION |
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Lord Marnoch Lord Hamilton Lord Caplan
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XA131/02 OPINION OF LORD CAPLAN in APPEAL From the Sheriffdom of Glasgow and Strathkelvin at Glasgow by BRICAN FABRICATIONS LIMITED Pursuers and Appellants;
against
MERCHANT CITY DEVELOPMENTS LIMITED Defenders and Respondents: _______ |
Act: Mackenzie, Solicitor Advocate; Masons (Pursuers and Appellants)
Alt: Edward, Solicitor Advocate; Maclay Murray & Spens (Defenders and Respondents)
17 July 2003
[23] I have reached the same conclusion as your Lordships and would dispose of the appeal as is proposed. At the end of the day the live issues in the case focused on the meaning to be accorded to the undertaking regarding payment which was given by the defenders to the pursuers and, on the effect of the liquidation of Circle on the agreed procedures for the valuation of outstanding payments due to the pursuers. These matters have been dealt with by your Lordships at some length and I could add little to what has been said. If there is any room for a difference of emphasis with regard to the theoretical analysis of the structure of the arrangements between the parties I do not regard it as being critical when considered against the background of this particular case.
